China's Sinopec Shanghai Petrochemical
This week I’ve got what I consider to be low-risk high-reward short sell recommendation on China’s Sinopec Shanghai Petrochemical Company listed below. Long term China and Sinopec is a buy. Short term Sinopec is a sell. First some analysis on the markets this week moving forward.
USA Indice's Look Down
After reviewing last week’s indices charts, I see another downturn coming this week for the DJIA, S&P500, and Nasdaq heading for new near term lows. The market is technically and fundamentally weak with low volumes, and with the weakness in the financials, the market seems to be showing no confidence to further upside right now. This week or next is showing to me it’s a good low-risk high-reward time to short equities again.
Low Volumes and Weak Fundamentals Technical’s
With the low volumes in the US markets, some of the Asia markets have been doing quite well enjoying what seems to be a current infusion of capital from around the world with their healthy growth rates of 5% plus and current strong stock prices. Maybe this is just fast money chasing strong momentum? Or is it money invested to stay there long term? I’m a pessimistic optimist on this currently, as I want to see if Asia will stay strong if and when USA and Europe markets head south.
High Flying Markets
Gold has been hitting new highs outperforming stocks, bonds and commodities lately which looks like investors and traders might be showing less and less interest in buying into the positive spin that the economy is on a healthy road to recovery. The real facts don’t support the healthy recovery story right now like those optimists wish.
USA Interest Rates Decision Tuesday
Tuesday is the USD Federal Open Market Committee rate decision, and on Wednesday is the Bank of England minutes. I’m betting on US rates staying the same at 0.25% which are as low as they can be. With interest rates being like this for some time now, is inflation a factor or problem? Not even. It is in Asia where growth is relatively strong right now and some of the Asean countries have been raising rates. In the USA, the rates look like they’re staying low for a long time to come in my opinion.
Deflation Is Real Right Now
The real issue I see is deflation, and declining prices in all asset classes across the board. Countries around the world want their currency weaker to compete and grow their GDP. I see equities heading further down, along with the current high flying commodities, and the current top flying ace gold. I agree with George Soros, that Gold is in an “ultimate bubble” right now. The best time to buy gold is at the beginning of a growth and inflationary period. Not now chasing record high prices because there’s nothing else to buy right now. Sure 52 week price breakouts are nice, but in a healthy economic environment. Not a very un-certain environment like we have right now. 52 week breakouts can easily reverse in a market environment like now.
My Stock Pick This Week Is a Short Sell
It’s what I consider a low-risk high-reward sell position on Sinopec. With China slowly putting on the brakes to their red hot smoking economy over the past few years, and the USA still trying to get China to move faster at increasing the value of their Yuan currency, some China stocks in general should be under pressure for the time being. I don’t usually short China stocks, but Sinopec’s price is near the top of its 52 week range, and the risk reward ratio and trade setup looks very attractive right now to short it.
If the USA stock market tanks again as I forecast it will anytime now, the big question comes as to whether growing Asia follows or bucks the trend either short or long term. I believe that Asia will lead the global economy recovery, but in the short term, I’m watching it like a hawk with some of those markets hitting new 52 week highs. Is this finally the time for decoupling in the global markets with Asia leading the way? So far yes, but how long will it last? If the whole global economy was in a bull trend, I would say yes, but it’s not, and these markets that are in new 52 new highs can easily see a reversal once they’ve trapped enough money for the selloff. Always be ready for what you don’t see that can blind side you.
Sell Short Sinopec Shanghai Petrochemical – Ticker SHI
Sell Entry: 42.46 to 41.45
Take-Profit Areas: 38.86 to 38.48, 38.05 to 37.69, 36.06 to 35.70, 31.97 to 31.65
Sinopec Company Profile
Sinopec Shanghai Petrochemical Company Limited engages in the production of polypropylene compound products, polypropylene products, acrylic fiber products, petrochemical products, synthetic fibers, resins and plastics, and petroleum products in China and internationally. It also involves in the import and export of petrochemical products and equipment. The company was founded in 1972 and is based in Shanghai, the People's Republic of China. Sinopec Shanghai Petrochemical Company Limited is a subsidiary of China Petroleum & Chemical Corporation.
Click the Sinopec Shanghai Petrochemical stock chart below for a larger view.
Disclosure: Going short based on trade plan above.